US Dollar near eight month low

The dollar lolled near an eight-month low against its peers on Thursday, as a gloomy US corporate earnings season stoked recession fears and as traders stayed on guard ahead of a slew of central bank meetings next week.

The US dollar index, which measures the greenback against a basket of currencies, last stood at 101.53, languishing near last week's eight-month trough of 101.51.

Trading was thin on Thursday, with Australia out for a holiday and some parts of Asia still away for the Lunar New Year.

Downbeat earnings and guidance from US corporates and a string of tech sector layoffs have deepened fears of an economic downturn in the United States, leading investors to pare back expectations on how much longer the Federal Reserve will need to aggressively raise interest rates.

"There are now signs the US economy may be slowing in a more meaningful manner," said economists at Wells Fargo.

"With the Fed no longer leading the charge on interest rate hikes and US economic trends set to worsen, we now believe the US dollar has entered a period of cyclical depreciation against most foreign currencies."

The Fed's policy-setting committee will begin a two-day meeting next week, and markets have priced in a 25-basis-point interest rate hike, a step down from the central bank's 50 bp and 75 bp increases seen last year.

Markets expect policymakers at the Bank of England and European Central Bank (ECB), who will also meet next week, to deliver 50 bp rate hikes. The ECB is seen most likely to remain hawkish.

Sterling was last 0.12% higher at US$1.2415, while the euro rose 0.05% to US$1.0920, flirting with its nine-month high of US$1.0927 hit on Monday.

"The euro does draw a lot of attention," said Jarrod Kerr, chief economist at Kiwibank. The euro zone "had a favourable winter .... The energy crisis that people were expecting hasn't quite played out yet."

Elsewhere, the Canadian dollar last traded at 1.3393 per dollar, after the Bank of Canada on Wednesday raised its key interest rate to 4.5% but became the first major central bank fighting global inflation to say it would likely hold off on further increases for now.

The Aussie edged 0.06% higher to US$0.7107, after jumping 0.8% on Wednesday following shock data showing Australian inflation had surged to a 33-year high last quarter, bolstering the case for the Reserve Bank of Australia to raise interest rates again next month.

The kiwi steadied at US$0.6480, having slumped 0.43% in the previous session after New Zealand's fourth-quarter annual inflation came in below its central bank's forecast.

In Asia, the Japanese yen rose 0.3% to 129.21 per dollar.

Bank of Japan (BOJ) policymakers debated the inflation outlook at their January meeting, with some warning that it could take time for wages to rise sustainably, a summary of opinions at their meeting showed on Thursday.

At that meeting, the BOJ kept ultra-low interest rates unchanged but beefed up a monetary policy tool to prevent the 10-year bond yield from breaching its new 0.5% cap. Its decision defied market expectations of further tweaks to monetary policy.

 

Biden to send 31 Abrams tanks to Ukraine

Finally, US President Joe Biden has agreed to send 31 M1 Abrams tanks to Ukraine, matching a German announcement to immediately provide Leopard tanks that Kyiv says are essential in their fight against Russia.

It must be kept in mind that the Abrams tanks are not expected to reach the battlefield for months related to the time needed to procure the tanks and carry out the training necessary for Ukrainian forces, senior administration officials told reporters Wednesday.

The decision to provide the Abrams tanks marks a stunning reversal for the Biden administration, which had previously argued they would be of little benefit to Ukraine.

But the decision to send the tanks helped get Germany to move forward with a separate effort to provide Leopard tanks to Ukraine, which the US had seen as benefitting Kyiv.

German Chancellor Olaf Scholz announced Wednesday that Berlin would send Leopard tanks to Ukraine and allow for other European nations to also send to Kyiv the German-made tanks.

“Today’s announcement really was the product of good diplomatic conversations as part of our regular and ongoing close consultations with allies and partners on security assistance to Ukraine,” a senior administration official said, “Certainly very appreciative of Chancellor Scholz’s announcement today.”

Ukraine lobbied hard for US, Germany and other countries to supply the tanks, which it said would be critical to a spring counteroffensive against Moscow.

“So the tank coalition is formed. Everyone who doubted this could ever happen sees now, for Ukraine and partners impossible is nothing,” Ukrainian Foreign Minister Dymtro Kuleba tweeted.

A senior administration official, responding to a question over whether the delivery of Abrams was a precondition for the Germans to greenlight Leopards, said Biden and Sholz spoke several times by phone over the past month and that the tank discussion was part of an “iterative conversation” between the US and Germany.

“We have closely coordinated our security assistance with allies and partners throughout the conflict, including Germany,” the official said.

Biden spoke Wednesday morning with Sholz, French President Emanuel Macron and British Prime Minister Rishi Sumak, officials said.

A senior administration official said the US expects other nations to announce contributions of additional armored capability, including some that will be readily available for use on the battlefield in the coming weeks and months. 

The administration expects that Russian President Vladimir Putin will push for the Russian military to go on another offensive as the weather improves, another senior administration official said. The tanks decision is meant to help give the Ukrainians the the ability to retake, to reclaim their sovereign territory and that means everything that is recognized by international borders.

The British Ministry of Defense said in a recent intelligence assessment that Ukraine has liberated around 54% of the maximum amount of extra territory Russia seized since it launched its full-scale invasion on February 24, 2022.

Russia still controls around 18% of internationally recognized areas of Ukraine, including the eastern region of Ukraine, called the Donbas, and the Crimean peninsula, which Moscow seized in 2014. Their annexations have been rejected by the US and other international partners. 

Ukrainian President Volodymyr Zelensky has said the full liberation of Ukrainian territory, and in particular Crimea, is necessary for any peace talks with Russia. 

The Biden administration has been careful in offering military support to Ukraine, wary of Putin threats to use nuclear weapons.

Russian ambassador to Germany, Sergei Nechaev, reportedly said in a statement Wednesday that Germany’s decision to approve the delivery of Leopards is extremely dangerous and takes the conflict to a new level of confrontation. 

Western support of advanced military capabilities is viewed as essential for Ukrainians to mount a counter offensive that could threaten Russia’s holding of the Crimean peninsula.

The senior administration official, responding to a question of whether the administration supports Ukraine retaking territory in the Donbas and Crimea, said that the US does not tell the Ukrainians where to strike, where to attack, where to conduct offensive operations.

“Crimea is Ukraine. We’ve never recognized the illegal annexation of Crimea,” the official continued. “But where the Ukrainians decide to go and how they decide to conduct operations in their country, those are their decisions to make.” 

It is expected to take months before the Abrams reach the battlefield. Training of Ukrainian forces for operating and maintaining the tanks is expected to take place outside of Ukraine, the officials said. 

A senior administration official described the coordination on tanks for Ukraine as an impressive display of unity nearly a year into the conflict, underscoring Biden’s focus on coordination with allies and partners. 

“The President has been extremely focused on the importance of alliance-unity, of Trans-Atlantic unity, and we have tried to make that a hallmark of everything that we have done for Ukraine throughout the 11 months of this conflict.”

Maersk and MSC to end alliance beginning 2025

Denmark's Maersk and Swiss-based MSC, the world's largest container shipping companies, said on Wednesday they had agreed to end a vessel sharing alliance in January 2025, allowing them to pursue individual strategies.

The 2M alliance was introduced in 2015 to cope with a glut of ships and weak demand, and to ensure competitive and cost-efficient operations on main shipping routes from Asia to Europe, as well as across the Atlantic and Pacific oceans.

Both companies saw the alliance as a way to manage more capacity after purchasing new mega-ships.

More recently, MSC responded to rising shipping rates caused by pandemic-related delays and bottlenecks by increasing the size of its fleet, while Maersk has kept its fleet size mostly steady.

"Today, we have a much different strategy, where we more look at how to integrate container shipping at sea with our land-based logistics business," Maersk's head of ocean shipping Johan Sigsgaard told Reuters in an interview.

"Operating our own network gives us more flexibility and allows us to connect our ships exactly where we want," he said.

Maersk expects to be able to deliver ocean shipping at the same scale when the partnership with MSC ends without raising the cost of moving each container at sea, Sigsgaard said.

Shares in the company fell after the announcement and were trading 3.6% lower at 1103 GMT.

MSC said in a statement, "We continue to strengthen and modernize our fleet, providing us with the scale we need for the most comprehensive ocean and short-sea shipping network in the market."

MSC, privately owned by the Aponte family, overtook Maersk as the world's biggest container in 2021. Both companies hold market share of around 17%.

"We have been fighting fiercely over customers and market share the last eight years. I don't see increased competition as a result of this," Sigsgaard said.

 

 

 

Bangladesh: Opposition seeking US help

I am obliged to refer to a letter by the Coalition for Human Rights & Democracy in Bangladesh (CHRD Bangladesh) to Donald Lu US Assistant Secretary of State for South and Central Asian Affairs. CHRD has appreciated sincere and commendable works during visit of Donald Lu to Bangladesh on January 14-15, 2023.

It has also referred to its earlier letter dated January 08, 2023, emphasizing the importance of Donald’s visit in view of the ongoing volatile political situation generated by the anti-democratic practices by the administration of Prime Minister Sheikh Hasina in the face of the people’s countrywide movements against her rule.

The people are seeking the end of her fascist regime, which they call illegal because it continued to capture power since 2009 through massive election fraud. Bangladeshis want free and fair elections under a neutral authority. We look forward to the materialization of your objectives at the soonest.

The CHRD Bangladesh may take this opportunity to highlight a few core foreign policy objectives of the US administration: Human Rights, Freedom of the Opposition’s Political Activities and Election Integrity.

Human Rights Human rights still remain a far cry in Bangladesh. The regime apparently maintained a slight pause in its repressing activities during your visit, but intensified them on the people and the opposition immediately afterwards, as if in retaliation of the pressure of your visit.

The human rights violations by the notorious Rapid Action Battalion (RAB) and police might have shown slight improvements since the US sanctions in December 2021, but their routine abuses against the people continued unabated, much of which perhaps escaped the attention of the monitoring agencies.

On January 21, 2023, a RAB member in Dhaka was caught trying to rob a car carrying passengers coming from overseas. Few people can talk, much less criticize, the regime under the draconian Digital Security Act (DSA).

They continue to be severely penalized for mild words against the Sheikh family and the ruling elites. 

In Bangladesh today, only the ruling Awami League has the freedom of activities which include extortion, social crimes and attacks on the political opposition. The opposition parties have little or restricted political activities (lately as prescribed by the ruling authority).

The RAB, police and the party thugs continue to flex their muscles against the opposition and prevent or disrupt their peaceful gatherings and activities. Their attacks on the party gatherings of the Bangladesh Nationalist Party (BNP) on December 07 and 08, 2022 sent many to their graves, hospitals and jails. Even during your team’s presence in Dhaka on January 14-15, 2023, their terror acts continued on the peaceful gatherings of the opposition in Mymensingh, Chittagong and other cities, sending many to hospitals and jails with multiple charges against each.

Reportedly, 24,000 members of the BNP have been taken to custody since early December of 2022. As of now, tens of thousands of them are in jails, booked under about 3.5 million fictitious charges. 

With the scrapping of the election-time Caretaker Government (CTG) by Sheikh Hasina immediately upon becoming the Prime Minister, the election system in Bangladesh totally collapsed. It became a symbol of heightened corruption and irregularities. No national or local level election had an iota of fairness or honesty.

Everything was controlled and managed by the ruling coterie to make its chosen candidates the winners. As such, as you may note, Sir, the representatives in the parliament, as well as the elected positions in the local bodies, almost entirely belong to the ruling class. In other words, the opposition has no say in any of these forums or anywhere. Any future elections to be free and fair, the existence of these fraudulently elected partisan elements will be a serious blockade.

The Election Commission and the election officials are carefully selected by the government to serve its purpose. With absolute control on the administration down to the lowest levels, including the election apparatus, the opposition is either unable or not allowed to make any electioneering activities or have its presence at the polls.

In many cases, suspected opposition voters were driven away by the Awami League thugs and their votes were proxied in favor of the ruling candidates. In addition, rounding up and sending the opposition leaders and activists to jails prior to elections had been routine tasks of the loyal RAB and police.

The results of the past 14 years are before anyone to examine and judge. Consequently, the country has fallen into a one-party authoritarian dictatorship since 2009. Under the chosen Election Commission, election officials and its fraudulently elected local bodies, the general public has no chance to exercise its free franchise during the polls.

As such, a fair and credible election under the present administration is a simple impossibility. The US may also ponder why the Hasina regime is vehemently opposed to elections under a CTG (citing constitutionality of her own vicious creation).

According to most observers, the ruling government is so unpopular and detested by the people that it has no chance of winning even a comfortable number of seats, let alone winning in a fair election. In view of the above situation, and with a view to ensuring credible elections in Bangladesh, the following steps are extremely essential:

Elections must be held under a neutral Caretaker Government, members of which should not be allowed to seek any elected positions. Prior to that, the government should step down and the parliament be dissolved. They (immediate past government) should have no role in the CTG.

The Election Commission and other election related officials should be reconstituted with neutral and non-partisan elements.

All controversial and partisan officials in the administration, including law enforcement agencies and the military should be removed. Even known partisan officials in the judiciary should also be either removed or suspended. This is needed to ensure the neutrality of the election-time administration.

All authoritarian tools, such as the RAB and DSA should be suspended during the elections.

Honorable Sir, it may be appreciated that if the people of Bangladesh can freely choose their representatives to run the government, most of the other problematic issues like democracy, human rights, freedom, corruption etc. will be resolved automatically. Under a corruption-free and accountable government, the country will be expected to move forward to greater progress and security, both locally and globally. It is the unelected or fraudulently elected or illegal regime that causes problems for the people and the world.

Finally, unless the future elections in Bangladesh are credible, fair and participatory, all the sincere efforts of the US will end in futility. The CHRD Bangladesh certainly does not desire such an outcome from your visit, Honorable Sir.

Pakistan: Energy supplies far from satisfactory

The incumbent government continues to say that Pakistan has ample supplies of petroleum products, the situation seems far from satisfactory. The fears are growing that if Pakistan and IMF fail in arriving at the consensus at the earliest supplies will dry in weeks.  

It may be recalled that on January 19, 2023 Petroleum Division wrote a letter to Governor, States Bank of Pakistan (SBP) to draw attention to the limited stocks of POL in the country and impending dry-out.

The SBP was asked for immediate establishment of 32 credit letters of refineries (PARCO and PRL) and oil marketing companies (PSO, GO, Hescol, BE, TAJ, PUMA, APL, EURO and Flow) to ensure import of crude oil and petroleum products.

The official said that when the country was not faced with the letters of credit crisis, 4-5 petrol cargoes were being imported, which was now down to 1.5 cargoes. However, three petrol cargoes of PSO, GO and Shell would soon arrive in the country.

PSO is importing a cargo of 50,000 metric tons, whereas cargoes of GO and Shell were smaller. However, it will be enough to avert the dry-out for the next fortnight,” the official informed.

It has been reported that State Minister for Petroleum Musadik Masood Khan will meet Governor SBP on Wednesday to discuss prioritized opening of credit letters to import petrol, an official of the Energy Ministry said.

The SBP governor would also be briefed about the current stocks of POL in the country by the petroleum minister.

Under the first priority list, DG oil recommends SBP to establish 23 letters of credit for the import of crude oil and petrol.

Under the second priority, 5 letters of credit need to be established for the import of high-speed diesel, whereas under the third priority list, 4 L/Cs for the import of lubricants had been recommended to the central bank.

According to the first prioritized list, PARCO needs the establishment of L/Cs for the import of two cargoes each having 535,000 barrels from ADNOC, one on January 13 and the other one on January 19. PRL also needs the opening of L/C for the import of 532,000 barrels of crude oil on January 30, 2023.

OMCs like PSO need the immediate establishment of L/Cs for the import of two cargoes, with each having 50,000 metric tons of petrol; one on January 17 and the other one on January 26. GO needs the opening of 6 L/sCs to import 6 petrol cargoes, BE needs 4 L/Cs to import petrol, TAJ and HPL need two L/Cs, whereas PUMA, APL and Flow need one L/C each to import their respective petrol cargoes.

The second priority list is for the import of HSD. OMCs such as TAJ need the opening of L/C to import 4,000 tons on February 4, 2023, while GO needs to establish 3 L/Cs for import of three cargoes having HSD on February 25-27.

Under the third priority list for the import of lubricants, PSO needs to establish L/Cs for import of three cargoes on March, 30, May 25, and May 20, and EURO is required to open L/C for one cargo of lubricants, which has already arrived.

Oil and Gas Regulatory Authority (OGRA) strongly refuted the claims on petrol/diesel shortages in the country on Tuesday.

OGRA Spokesman Imran Ghaznavi said, “The country has sufficient petrol and diesel stocks for meeting the demand for 18 and 37 days respectively. Furthermore, ships carrying 101,000 metric tons petrol are at berth/outer anchorage.”

Local refineries have been playing their due role in meeting the demand of petroleum products, the spokesman added.

 

 

Europe: Mild winter shifts LNG trades

LNG markets continue to surprise. At the beginning of 2023, the big themes were that European imports would continue to drive seaborne ton-miles higher, supplemented by a resumption of imports into China as economic activity resumes.

In a mid-January webinar presentation by Kristen Holmquist, the lead data analyst at shipbroker and LNG consultancy Poten & Partners, these observations were buttressed by deep underlying analytics.

Any predictions of what might happen are highly nuanced, and subject to a variety of “what-if?” considerations. But Poten’s analytical team suggests that overall seaborne LNG tonnages might rise to around 415 million tons in 2023, up around 20 million tons from 2022.

A major contributor to this uptick will be the US, with the damaged Freeport LNG facility, in the US Gulf (capable of exporting 1.0 - 1.3 million tons/month), to come back online during Q12023, Poten expects. Others are more cautious; Rystad Energy said that a full ramp-up might not occur until mid-2023.

The big demand-side driver of all these numbers is Europe; in Holmquist’s words, “Europe is expected to be in good shape at the end of the winter.” So far, the 2022-23 Winter has been warmer than anticipated, leading to lower gas import demand.

However, pipeline imports from Russia have been down dramatically, with further decreases anticipated during 2023. A big part of the demand picture is driven by imports of LNG in advance of the Winter season.

Holmquist said that the storage buildup during 2022 “…was higher than we expected…” and she added that, so far during the warmer than normal winter months, the levels of gas in storage “…have come down by less than we expected.” The result is that storage is at historically high levels.

China’s economic activity is expected to rebound in 2023, and so the country is also expected to account for 6 million tons of additional demand in 2023 as compared to 2022, though it was noted that anticipated seaborn import levels are still 9.5 million tons below 2021’s 80 million tons.

What does all this mean for LNG shipping? Seaborne rate dynamics were not covered explicitly in the Poten webinar, but it’s possible to offer some demand-side observations on this question. Though much of the gas coming out of the US is sold under term contracts, US exports are often shipped on an “FOB” basis- meaning that purchasers can direct cargoes to either Europe or Asia.

One important feature of the markets has been the sharp drop in European prices as measured by the TTF indicator; after seeing elevated levels for much of 2022, they are now below the Asian JKM numeraire.  

So, at least for this increment of LNG shipping, with the US anticipated to export up to 90 million tons in 2023, we may see a ton-mile increase. With higher prices in Asia, more cargo flows to Asia might balance what may be a lower demand for cargoes bound for Europe with its reduced need to fill up storage in advance of the 2023-24 gas season”, which starts in October.

Anecdotally, analysts at Rystad said that US exports to Asia rose 38% in the first half of January, while gas shipments to Europe slid by 22% during the same time period. They add, “While we do not anticipate an immediate diversion of cargoes towards Asia, with the expected rebound of China gas demand during the year, Europe and Asia markets will undoubtedly see increased competition for available LNG supplies.”

Courtesy Seatrade Maritime News

 

Pakistan Needs Effective Debt Restructuring

Pakistan’s leading brokerage house, Topline Securities, in its report titled “Pakistan’s Debt Restructuring - External Debt Repayment Crisis” dated December 03, 2022, had highlighted Pakistan’s external debt repayment obligations of US$24 billion annually and the need to address these in a sustainable way. The brokerage house opined these external debt repayments are too high and should ideally be rescheduled and reduced to sustainable levels.

The brokerage house further highlighted that current foreign exchange crisis was mainly driven by external debt obligations and not trade unlike Pakistan’s previous foreign exchange crisis of 2008. Therefore, despite ongoing import controls, Pakistan’s foreign exchange reserves continue to dwindle to 9-year low at US$4.6 billion only as debt repayments continue to come due and are serviced.

Falling foreign exchange reserves, delay in IMF review and slow policy actions are adding to Pakistan’s distress. Resultantly, despite of more than US$10 billion pledges, Pak Rupee (PKR) black market premium is continuously rising and has increased from 10% a few weeks back to 15% now when compared to the official interbank rate.

The brokerage house highlights that the true culprit of the current debt conundrum is short term rollovers that have increased by 9 times to over US$12 billion since 2015. It is of the view that external debt restructuring is an eventuality, and the mode of restructuring, that is orderly or disorderly, will test Pakistan’s economic vulnerabilities.

The brokerage house believes that Pakistan should ideally try to convert its short term external loans with long term with the help of friendly countries like China, Saudi Arabia, United Arab Emirates etc, if that is not doable than Pakistan should try G-20 common framework of debt restructuring. These are less painful and will help recovery soon without affecting credit ratings. 

If the Government of Pakistan does not opt for orderly and amicable restructuring and continues to rely on short term funding from friendly nations or relief in the form of low cost loan vis-a-vis for floods to manage the country’s external accounts, the country could move towards a disorderly and coercive restructuring that will be very painful and may trigger a further credit rating downgrade.

After brokerage house’s earlier report, many other experts, trade bodies and polls suggest that Debt Restructuring is the most viable solution that can help reduce debt burden and will lead to relatively faster economic recovery.

The Monetary Policy Announcement of January 23, 2023 underscores the need for debt restructuring as US$8 billion of debt still needs to be dealt with in next 5 months till June 2023 while the country’s reserves are half of that. Even if the bulk of this amount is rolled over as the SBP is alluding to, the meter will again reset on July 1 when the rollovers will restart for FY24.

A few countries including Angola, Greece, Argentina, Ghana, Sri Lanka and Zambia among others have gone through debt restructurings. Based on their experience, the brokerage house found that orderly and timely debt rescheduling is relatively less painful and provide better chances of quicker economic recovery.